I was always under the impression that if you were to deposit £100 into the bank from your savings the bank would have £100. From that £100 they are able to issue loans at a multiple of your £100. Say for example 10 times (I have no idea what the multiple is these days) meaning that from your £100 they can lend £1000. That £900 doesn't actually exist - it's magic.
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I'm not sure they can do that directly I think they have to keep a percentage of the initial deposit something like 10% it used to be higher for building socs. I'm sure Alder can fill all that in.
Here's a vid that explains it and how multiple loans effectively do that.